The PBGC has approved 23 applications for Special Financial Assistance (SFA) since December 21, 2021. SFA amounts thus far have ranged from $4.5 million to $1.3 billion. Of the 23 approved applications, 10 were accepted without any necessary revisions following the PBGC’s review and the remaining 13 applications were approved after revisions were made to the original application submission.

The cumulative amount of SFA payouts to date totals $6.5 billion.

The Pension Benefit Guaranty Corporation (PBGC) released an interim final rule on July 9, 2021 which offered guidance on the Special Financial Assistance (SFA) program as established under the American Rescue Plan Act (ARPA).

The purpose of the SFA program is to provide relief to plans in financial distress.  The SFA program is expected to assist plans covering more than 3 million participants and is expected to provide funds for make-up payments to restore previously suspended benefits under the Multiemployer Pension Reform Act of 2014 that total approximately $550 million.

A plan that receives SFA must reinstate any benefits that were suspended and provide payments to certain participants (or beneficiaries) to make up past benefits that were previously suspended.  The plan sponsor has the flexibility to pay make-up amounts as single lump sums to be paid within three months of the payment date of SFA, or in monthly installments to be paid over a period of five years beginning within three months of the payment date of SFA.  Further guidance is to be issued by the Treasury Department and the IRS.

To address the possibility that a plan may implement changes that could entitle it to more SFA than was intended, the amount of SFA is limited to the amount that would have been determined if certain events had not occurred.  These events include, but are not limited to, mergers, transfers of assets or liabilities (including spinoffs), increases in accrued benefits, and/or reductions in contribution rates.  This limitation applies to events that occur between July 9, 2021 and the SFA measurement date. 

There is an exception to this rule – a possible benefit increase could occur from the restoration of benefit suspensions of retirees and beneficiaries in pay status.  This restoration of benefits can be adopted at any time.  The restoration of benefit suspensions will be taken into account in determining the amount of SFA regardless of when the restoration occurs. 

Partitioned plans also have benefit suspensions.  These suspensions must be reinstated if the plan is approved for SFA and make-up payments must be provided to participants and beneficiaries to restore previously suspended benefits.

The plan sponsor will be required to furnish a notice of benefit reinstatement to eligible participants and beneficiaries whose benefits were previously suspended and then reinstated.  More information regarding the notice content requirements and reinstatement instructions are available on the PBGC’s website at www.pbgc.gov.

The Pension Benefit Guaranty Corporation (PBGC) released an interim final rule on July 9, 2021 which offered guidance on the Special Financial Assistance (SFA) Program as established under the American Rescue Plan Act (ARPA).

This article will serve as the second in a series of articles summarizing different aspects of ARPA.

Eligibility for Assistance

A plan is generally eligible to receive SFA if it falls into any of the following groups:

• A plan in critical and declining status in any plan year beginning in 2020, 2021, or 2022
• A plan with a suspension of benefits approved under Section 305(e)(9) as of the date ARPA became law (3/11/21)
• A plan which, in any plan year beginning in 2020, 2021, or 2022:
  • Is certified in critical status
  • Has a modified funded percentage of less than 40% as defined below:
    • Current value of assets (Market Value + the value of withdrawal liability payments due to be received by the plan on an accrual basis, reflecting a reasonable allowance for amounts considered uncollectible), divided by,
    • Current liability (line 2b(4) column (2) on the Schedule MB)
  • Has a ratio of active to inactive participants which is less than 2 to 3
    • Participant counts are as reported on lines 6a(2), 6b, 6c, and 6e of the Form 5500 for the applicable plan year
• A plan that became insolvent for purposes of 418E of the Internal Revenue Code after December 16, 2014, has remained solvent, and has not terminated under section 4041A of ERISA as of March 11, 2021

Amount of Assistance

The SFA was defined under ARPA to be the amount required for the plan to pay all benefits due through the last day of the plan year ending in 2051. The PBGC has clarified this definition to mean it is the amount by which a plan’s resources fall short of its obligations during this period. Under this definition, plan resources include its assets as of the measurement date (the last day of the calendar quarter immediately preceding the SFA application filing date) as well as expected income through the end of the last plan year ending in 2051. The plan’s obligations include all benefits payments and all expenses necessary to keep the plan in operation through the end of the last plan year ending in 2051.

For purposes of determining the present value of future income and the present value of future obligations through the end of the last plan year ending in 2051, the discount rate is prescribed. This discount rate is the lesser of (1) the long-term discount rate used in the most recent actuarial certification of status before 1/1/21 and (2) the third segment rate from the 24-month average corporate bond yield curve for any month selected by the plan within the 4-month period ending with the month in which the SFA application is filed, plus 200 basis points.

Additional considerations for calculating SFA include:

• Participant census data must be as of the first day of the plan year preceding the plan year in which the application is filed, if the application is filed less than 270 days after the beginning of the plan year. Otherwise, the census data must be as of the first day of the plan year in which the application is filed.

• For plan mergers occurring on or after July 9, 2021, the SFA amount is calculated separately for all of the plans involved as if the merger never took place.

• In the case of asset or liability transfers, the SFA amount is calculated as if such transfers never took place.

• The PBGC is authorized to impose conditions relating to the diversion of contributions to, and allocation of expenses to, other benefit plans.

The SFA amount will also include the amount necessary to provide make-up payments to participants or beneficiaries whose benefits were reduced by way of benefit suspensions under the Multiemployer Pension Reform Act of 2014. Additionally, plans receiving SFA that have previously suspended benefits must reinstate those benefit suspensions effective immediately upon receipt of SFA.

Approved plans will receive the SFA as a lump sum payment within 90 days of the approval of its application. There is no repayment obligation with regard to these monies.

There are rules and requirements with regard to the assumptions used in determining the SFA that are beyond the scope of this summary. For more details regarding assumptions and the application process, please visit the PBGC’s https://www.pbgc.gov/arp-sfa.

The Pension Benefit Guaranty Corporation (PBGC) released an interim final rule on July 9, 2021 which offered guidance on the Special Financial Assistance (SFA) Program as established under the American Rescue Plan Act (ARPA).

To ensure that it is not overwhelmed with applications and to prioritize the most affected multiemployer pension plan participants, the PBGC has established Priority Groups for plans intending to submit applications for SFA.

The application window start date and criteria to be met for each Priority Group are as follows:

• Priority Group 1: The PBGC began taking applications for the Special Financial Assistance Program on July 9, 2021 for Priority Group 1.  Priority Group 1 consists of plans that are already insolvent or are projected to become insolvent prior to March 11, 2022.
• Priority Group 2: The PBGC will begin taking applications for Priority Group 2 on January 1, 2022*.  Priority Group 2 consists of plans that implemented benefit suspensions before March 11, 2021 under the Multiemployer Pension Reform Act of 2014 (MPRA).  Note that plans will still fall under Priority Group 2 even if they restore previously suspended benefits before applying for SFA.  Additionally, plans that are expected to become insolvent within one year of the application for Special Financial Assistance are included in Priority Group 2.  
• Priority Group 3: The PBGC will begin accepting applications for Priority Group 3 on April 1, 2022*.  Priority Group 3 consists of plans that are in critical and declining status with more than 350,000 participants.
• Priority Group 4: The PBGC will begin accepting applications for Priority Group 4 on July 1, 2022*.  Priority Group 4 consists of plans that are projected to become insolvent before March 11, 2023.
• Priority Group 5: The PBGC will specify on its website at least 21 days in advance of when it will begin accepting applications for Priority Group 5, and it must begin accepting applications no later than February 11, 2023.  Priority Group 5 consists of plans projected to become insolvent before March 11, 2026.
• Priority Group 6: The PBGC will specify on its website at least 21 days in advance of when it will begin accepting applications for Priority Group 6, and it must begin accepting applications no later than February 11, 2023.  Priority Group 6 is for plans whose present value of financial assistance exceeds $1 billion.

*All application dates are target dates only and are subject to change.  An earlier date may be specified on the PBGC’s website in the future.

No later than March 11, 2023, the application window will be open to all other eligible plans.

The PBGC may add more Priority Groups if there are additional circumstances that differ from the established Priority Groups.  In addition to the established Priority Groups, the PBGC will also begin accepting Emergency Filings at the same time as Priority Group 2 applications. To qualify for an Emergency Filing, the plan must notify the PBGC prior to submitting the application, verify the claim of emergency status, and meet one of two criteria:

• Be insolvent or expected to be insolvent within one year of the application date; or
• Suspend benefits prior to March 11, 2021.

As Priority Group application windows open, the PBGC will continue to accept applications for earlier Priority Groups.  The PBGC will accept as many applications as it anticipates it can process in 120 days.  Once this limit is met, the application window will temporarily close until the PBGC has capacity.

Plans intending to apply for SFA can visit https://www.pbgc.gov/arp-sfa to check eligibility status and to start an online application (if eligible).